Emerging issues in transport: Inter-island shipping
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1 Distr.: For participants only 21 June 2011 English only Economic and Social Commission for Asia and the Pacific Expert Group Meeting on Preparations for the Ministerial Conference on Transport Bangkok, July 2011 Item 3 (i) of the provisional agenda Emerging issues in transport: Inter-island shipping Emerging issues in transport: Inter-island shipping Note by the secretariat Summary The provision of efficient, reliable and affordable shipping services to, from, between and within island and archipelagic developing countries presents a number of unique constraints and challenges. These include challenges in matching ship size, service speed, port capacity, safety and comfort with low and often irregular traffic volumes, long voyage distances, imbalanced cargo flows and low unit values of exports. In some cases, these challenges lead to unprofitable routes or cherrypicking of the most lucrative or profitable shipments leaving the less attractive shipments to others. As a result a vicious downward circle is set in place with a deterioration in regularity, reliability and affordability of services. These challenges can arise at three levels, namely, domestically, subregionally and internationally. This paper considers issues and challenges in inter-island shipping as well as some of the means of addressing them. It submits a number of issues for consideration of the meeting. Contents Page I. Introduction... 2 II. Issues and challenges in inter-island shipping... 2 III. Addressing issues and challenges... 3 IV. Issues for consideration... 7 The present document has been issued without formal editing. DMR A TP TD_EGM1_2011_11E
2 I. Introduction 1. The provision of efficient, reliable and affordable transport infrastructure and services contributes significantly to economic and social development as well as regional cooperation, integration and cohesion. This applies not only to countries that are located on the same land mass but also to those countries that are separated by water masses or have viable alternative water transport options between them. 2. For island member countries of the South Asian Association for Regional Cooperation (SAARC) including the Maldives and Sri Lanka, for many of the member countries of the Association of Southeast Asian Nations (ASEAN) and for the island developing states of the Pacific, maritime connectivity is of vital importance. 3. Similarly at the national level, for countries comprised of many islands including Indonesia, the Maldives, the Philippines and most of the Pacific island countries domestic maritime transport is the lifeline for local communities. 4. However, many archipelagic and island developing countries are experiencing difficulties in the provision of regular, reliable and affordable shipping services at three levels, namely, domestically, subregionally and internationally. 5. This paper considers the various challenges facing archipelagic and island developing countries in the provision of shipping services as well as some of the interventions that are being used to address the challenges. It then submits a number of issues for consideration of the meeting. II. Issues and challenges in inter-island shipping 6. The overall objective of transport policy is to ensure an economically efficient, environmentally friendly, socially acceptable and spatially equitable transport system for the benefit of all the peoples and businesses located within the jurisdiction of the policymaker. 7. The achievement of this objective is of particular importance to archipelagic and island countries, many of which face a number of specific constraints and challenges related to the demand for and supply of shipping services, as well as the institutional and organizational framework within which the inter-island shipping industry operates. 8. On the demand side, at least some segments of inter-island shipping can be characterized by low and often irregular traffic volumes, long voyage distances 1, imbalanced cargo flows and low unit values of exports; while on the supply side, there are considerations of ship economics (ship size in relation to volume of cargo offered, required service frequency, route length, ship speed, physical constraints to ship size at ports and time 1 Many domestic inter-island voyages would represent a major international voyage in other parts of the world and some inter-island voyages in the Pacific region are longer and potentially more hazardous than many intercontinental voyages. Williams, I. and Hoppe, H., Safety Regulations for Non-Conventional Vessels: the IMO Approach, < downloaded 27 July
3 in port) and indivisibilities in associated seaport infrastructure, superstructure and equipment. The consequences of these demand and supply considerations are high transport costs and low profits or chronic losses on shipping operations. 9. Thus begins a vicious downward cycle of events. The inability of ship operators to make adequate profits leads in turn, to a further deterioration in shipping services, entailing difficulties in securing finance, low levels of investment, inadequate maintenance, ageing fleets, an inability to attract seafarers and suitably qualified shipping company management staff, low productivity, poor service quality (frequency and reliability) or no services, and compromised safety standards. 10. The challenge in addressing these supply and demand issues is to find an entry point in the vicious circle where interventions can be made to turn it into a virtuous circle. 11. These difficulties can be further compounded by constraints in the ship repair industry, including: lack of adequate repair facilities, particularly in remote locations; difficulties in obtaining spare parts, especially for aged equipment and machinery; high costs of repairs and low standards of workmanship in ship repairs. 12. In addition, there are various institutional and organizational constraints that impact upon the sector, including: maritime legislation not meeting international standards; the legislative environment not being conducive to enforcement of ship mortgages or maritime liens; limited enforcement of safety standards; inadequately trained seafarers; lack of transparency in the operation of government-owned fleets and in awarding and monitoring of route licenses and contracts for subsidized shipping services. III. Addressing issues and challenges 13. In recent years, significant progress has been made in addressing many of the issues and challenges related to the maritime transport of island and archipelagic countries. 14. For many years, inter-island shipping of archipelagic countries such as Indonesia and the Philippines were highly regulated. However in the Philippines, Republic Act No.9295 of 3 May 2004 authorized domestic ship operators to establish their own domestic shipping rates and in Indonesia, Presidential Instruction (INPRES) No.4/1985, effectively allowed shippers and operators to fix freight rates on a mutually agreed basis. 15. In the Philippines, a 919 kilometer road-cum-sea highway or Strong Republic Nautical Highway has been developed which connects land and sea routes using roll-on roll-off (RO-RO) passenger and cargo vessels, ferries and fast craft, and in Indonesia there have been calls to extend the concept of ASEAN connectivity to domestic inter-island shipping services. 16. At the subregional level, ASEAN was able to state in its Roadmap towards an integrated and competitive maritime transport in ASEAN that ASEAN Member Countries have further developed what has for some time been a fairly open market for shipping services to, from and within ASEAN. With the exception of cabotage limitations, there are few 3
4 restrictions on where ASEAN (or non-asean) shipowners may operate, or what cargoes they may carry In the Pacific, the Regional Maritime Programme (RMP) of the Secretariat of the Pacific Community (SPC) has, since 1987, been providing technical advice and capacity building services in the areas of maritime law and legislation, maritime policy, maritime training, maritime security, compliance monitoring, strengthening national maritime institutions, upgrading maritime training curricula, information and knowledge dissemination and the development of a regional integrated maritime database. Specific activities have included audits of Maritime Training Institutes for STCW-95 (International Convention on Standards of Training, Certification and Watchkeeping for Seafarers) and ISPC (International Ship and Port Facility Security Code); drafting of maritime legislation 3 and the development of the RMP regional generic Pacific Maritime Laws (PIMLaws) The Pacific Islands Forum Secretariat (PIFS) has also been active in the maritime transport sector, amongst others, initiating the Pacific Regional Transport Study, the follow-up Forum Principles on Regional Transport Services, the Pacific Plan for Strengthening Regional Cooperation and the Integration and the Small Islands States (SIS) Shipping Service Initiative which established an agreement to provide regular shortterm shipping services using Kiribati Shipping Services Limited (KSSL) vessels to Fiji, Kiribati, Nauru, Tuvalu, Wallis & Fatuna. 19. The transport advisory services previously located in Pacific Islands Forum Secretariat (PIFS) became part of the Regional Transport Sector Programme of the Secretariat of the Pacific Community (SPC) from January 2010, replacing SPC s Regional Maritime Programme (RMP). 20. More recently, the Pacific transport ministers endorsed the Framework for Action on Transport Services (FATS) and the Transport Services Implementation Plan (TSIP) at their meeting at Noumea, New Caledonia in April The TSIP includes a set of activities at the regional and national level to address the transport issues and challenges facing the Pacific Island Countries. It also assigns responsibility for the various activities as well as indicating their priority and whether funding is available. 22. For many of activities in areas such as governance, maritime safety and security, climate change, data collection, and monitoring and evaluation, organizations such as SPC, IMO and ICAO as well as international financial institutions and bilateral donors have a comparative Roadmap towards an integrated and competitive maritime transport in ASEAN, adopted by the Thirteenth ASEAN Transport Ministers (ATM) Meeting, Singapore, 1 November See University of the South Pacific School of Law, Pacific Islands Legal Information Institute < (downloaded 27 July 2010). PIMLaws consists of four volumes covering administration, ports, pollution and shipping. Importantly, the PIMLaws are consistent with International Maritime Organization Conventions, customary international law and state practices. 4
5 advantage arising from their proximity, area of specialization or potential availability of funds to undertake more resource intensive projects. 23. Consequently, the ESCAP secretariat has examined the TSIP and identified a number of economic policy entry point in the vicious circle where interventions could be made to turn vicious circle into a virtuous circle. These are principally in areas that are not funded, are not specifically mentioned in TSIP but included in other mandates, or are national responsibilities that could benefit from the sharing of experiences at the regional level. 24. The areas considered include franchising of domestic shipping services, regional cabotage and regulation of entry into international trades. Franchising of domestic shipping services 25. At the national level, Theme 4 of the TSIP includes as national responsibilities, activities on a Maintenance fund for promotion of sustainable subsidies and to Examine franchise or subsidy schemes for uneconomical routes. The issues related to these activities are common to not only Pacific Island Countries but also to other archipelagic and island developing countries. Indonesia, for example, has a system of Public Service Obligations (PSO) and Pioneer Services (PS). Consequently, the secretariat could assist in the sharing of experiences in the franchising of domestic shipping services. Regional cabotage 26. The FATS, developed under the aegis of the Secretariat of the Pacific Community, is underpinned by the Forum Principles on Regional Transport Services and the Pacific Plan. 27. The Pacific Plan, endorsed by the Leaders at the Pacific Islands Forum meeting in 2005 and subsequently revised in 2007, is based on the concept of regionalism: that is, countries working together for their joint and individual benefit. As noted in FATS, the Pacific Plan calls for a more coordinated approach in order to enhance economies of scale and effectiveness in addressing regional transport services Further, the Forum Principles on Regional Transport Services, adopted by the Forum Economic Ministers in 2004 declared a number of principles as central to improving the efficiency, effectiveness and sustainability of air and maritime services. Amongst others, these included that Increased efforts should be made to implement regional or subregional solutions to problems in the transport sector through, for example: (a) strategic alliances; (b) liberalization of the economic regulatory environment; (c) agreement by FICs to regional cabotage, where FICs could benefit from more services and greater competition. 29. Maritime cabotage, or reservation of the domestic trade of countries to carriers of that country, has been shown to be a complex and sometimes emotive issue. The principle reason for its complexity is that it has 5 The Pacific Plan also noted that the economies of scale must be balanced against diseconomies of isolation. The best approach may in some instances be subregional or a grouping of a few countries. 5
6 6 significant impacts on stake holders with differing vested interests. Shippers and consumers have an interest in service quality and low prices; shipowners have an interest in profitability; labour has an interest in income, employment levels and working conditions; providers of services to the shipping industry (including shipbuilders and repairers) have an interest in profitability and employment; and governments have various economic, social and national security responsibilities and interests that they are expected to address. Givens the conflicting nature of these interests considerable difficulty is experienced in reconciling them. 30. While maritime cabotage is a complex issue, in recent times, a number of subregions have shown a willingness to at least consider, if not implement regional cabotage policies. 31. The most notable region is the European Union, where regional maritime cabotage has been in force since ASEAN has also adopted the Roadmap towards an integrated and competitive maritime transport in ASEAN, which amongst others, in its policy agenda includes a Single Shipping Market which would presumably include consideration of a regional cabotage policy. This however was recently postponed when the thirty-first ASEAN Senior Transport Officials Meeting held at Siem Reap, Cambodia from 24 to 26 May 2011 agreed to exclude domestic shipping and cabotage from the scope of a Master Plan Study and Feasibility Study on Global/ Domestic Shipping together with a Feasibility Study on an ASEAN RORO Network proposed in the Brunei Action Plan (ASEAN Strategic Transport Plan) Some subregions have shown an interest in the potential benefits of regional cabotage however, there lacks an empirical basis upon which to base policy decisions. Subject to availability of the necessary data, the secretariat could undertake studies to assess the impact of regional cabotage policies on the various stakeholders thereby providing policy makers with the framework for policy making. Regulation of entry into international trades 34. At the international level, the main economic shipping policy of Pacific Island Countries has been regulation of entry. One example of this is the Micronesian Shipping Commission (MSC) of the Republic of the Marshall Islands, the Federated States of Micronesia and the Republic of Palau (Saipan and Guam are nonvoting member). The Central Pacific Shipping Commission (CPSC) comprising Kiribati, Marshall Islands, Tuvalu and Nauru was also officially launched on 4 August The reaction to these Commissions has been mixed with on the one hand SPC suggesting that in their absence the very close collaboration amongst shipping companies render little or no competition and on the other hand studies by AusAID and ADB have questioning the need for such arrangements. 36. Other approaches, especially for the Small Island States, have been considered including the development of hub ports in Fiji, Papua New Guinea or Solomon Islands. As mentioned above, the Kiribati Shipping Services Limited (KSSL) signed an agreement with the governments of Nauru, Tuvalu, Kiribati and Wallis and Futuna on 13 May 2009 to provide regular feeder shipping services to those countries. There is also a similar
7 proposal for Samoa Shipping Corporation Ltd.(SSCL) to provide services to Tokelau, Niue and Cook Islands. 37. As with all regulatory regimes, there is a need to maintain a careful balance between competition within the market or contestability for the market. In this respect, there is a need to effectively monitor both the demand for and supply of shipping services in order to ensure the maximum benefits of such services are realized. In these respect, there may be merit in undertaking studies to assess the effectiveness of such regulatory regimes, as well as to investigate other means of developing shipping services such as hub-and-spoke systems. IV. Issues for consideration 38. The provision of efficient, reliable and affordable shipping services to, from, between and within island and archipelagic developing countries presents a number of unique constraints and challenges. These include challenges in matching ship size, service speed, port capacity, safety and comfort with low and often irregular traffic volumes, long voyage distances, imbalanced cargo flows and low unit values of exports. 39. In some cases, these challenges lead to unprofitable routes or cherry-picking of the most lucrative or profitable shipments leaving the less attractive shipments to others. As a result a vicious downward circle is set in place with a deterioration in regularity, reliability and affordability of services. These challenges can arise at three levels, namely, domestically, subregionally and internationally. 40. Governments are invited to provide guidance on the following elements suggested for inclusion in the Regional Action Programme Phase II ( ). Immediate objective: to assist in identifying possible approaches to enhancing the regularity, reliability and affordability of shipping services of archipelagic and island developing countries. Outputs: 1. Policy recommendations on effective strategies for securing regular, reliable and affordable inter-island shipping services for consideration of archipelagic and island developing countries; and 2. Advisory services and technical support to member countries, upon request, on the implementation of policy measures to support interisland shipping. Indicators of achievement: 1. Publication of study findings and recommendations for consideration of member countries. 2. Positive feedback on advisory services resulting in proposals for policy implementation. 7
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